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Hospital Risk-Based Payment Programs: How Much is Your Hospital Leaving on the Table?

risk-based payment

While the debate on Capitol Hill has shifted to other matters in recent months, health care remains an important topic among average Americans from all walks of life.  Controlling rising healthcare costs and improving quality for patients are concepts every American can agree on, even if we disagree on how to accomplish those goals.  Despite numerous unknowns about the future of healthcare in the U.S., one thing appears certain: pay for performance is here to stay.

The historic model that reimburses hospitals and providers for the quantity of care provided (the number tests and procedures, the number of days in the hospital, the number of medications dispensed) has given way to a model that is more and more focused on the value and outcomes of the care provided.  This “pay for performance” or “value-based” reimbursement model is driven by three important programs administered by the Centers for Medicare and Medicaid Services (CMS):

  1. VBP – Value-Based Purchasing
  2. HRRP – Hospital Readmission Reduction Program
  3. HAC – Hospital-Acquired Conditions

Risk based payment programs

Collectively, these programs have tripled in size, from placing 2% of hospital inpatient Medicare reimbursement at risk in 2013 to placing 6% at risk in 2018.  While 6% may not sound like much, when nearly half of all U.S. patients are Medicare patients and the average not-for-profit hospital margin in 2012 was less than 3%, not earning that risk-based reimbursement can mean going from a slim margin to no margin.

While many hospitals are keenly aware of the financial downside of these programs, it’s easy to forget the financial upside.  For instance, VBP includes both disincentives for poor performance and incentives for outstanding performance.  That is, hospitals can earn “extra” reimbursement.  And, when you look at the gap between where your hospital is today in total reimbursement versus where you could be if you earned the maximum incentive, the figures can be surprising.  In one case study, using this approach revealed $4.5 million in reimbursement “left on the table” across all risk-based programs for a 300-500 bed mid-Atlantic hospital.

Despite the continued debate over the Affordable Care Act, it doesn’t appear that CMS’s big three pay for performance programs are going anywhere.  In fact, if history holds, CMS will continue to increase the amount of reimbursement at risk for hospitals while simultaneously fine-tuning the performance measures to derive the most value from the programs.  And, with similar pay for performance programs in place through private insurers like Anthem Blue Cross Blue Shield, the need to know your hospital’s performance continues to grow.

Do you know what you’re leaving on the table?  If not, now is the time to find out.  You can discover your hospital’s performance (along with your competitors’ performance) on key indicators and compare them to national and state averages on Hospital Compare at  And, if you need help in driving improvement, please don’t hesitate to contact Soriant.  Our healthcare consulting firm can help you bring real dollars and value to your organization

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